Inflation rate slipped to 2.1% in April, lower than expected, Fed’s preferred gauge shows

Key Concepts:

• Personal Income and Spending (April)
• Wholesale and Retail Inventories
• PCE (Personal Consumption Expenditures) Inflation (Month-over-Month and Year-over-Year)
• Core PCE Inflation (Month-over-Month and Year-over-Year)
• Trade Balance (Deficit)

1. Personal Income and Spending:

• Personal Income: Increased by 0.8% in April, significantly exceeding expectations. This is almost triple the expectation.
• Historical Context: The 0.8% increase is the strongest month-over-month jump since May 2021 (1.9%).
• Year-to-Date Performance: Personal income has shown strong growth in the first four months of the year: January (0.6%), February (0.7%), March (0.5%), and April (0.8%).
• Spending: Increased by 0.2% as expected.
• Real Spending (Adjusted for Inflation): Increased by 0.1%, lower than the previous month's 0.7%.

2. Inventories:

• Wholesale Inventories: Unchanged, while expectations were for a 0.4% increase.
• Retail Inventories: Decreased by 0.1% as expected.

3. PCE Inflation:

• Month-over-Month: Increased by 0.1%, as expected.
• Year-over-Year: Increased by 2.1%, slightly below the expected 2.2%.
• Historical Context: A 2.1% year-over-year PCE inflation rate was last seen in February 2021.

4. Core PCE Inflation:

• Month-over-Month: Increased by 0.1%, as expected.
• Year-over-Year: Increased by 2.5%, as expected, and down from the previous month's revised 2.7%.
• Historical Context: A 2.5% year-over-year Core PCE inflation rate was last seen in the spring of 2021.

5. Trade Balance:

• Trade Deficit: Came in at -87 billion, significantly smaller than the expected -143 billion.
• Previous Month: The previous month's deficit was revised from -163 billion to -162 billion, the worst since record-keeping began in 1989.
• Historical Context: The -87.6 billion deficit is the smallest since September 2023.
• Explanation: The change in the trade balance is attributed to shifts in the movement of goods and services, potentially due to tariff-related issues.

6. Market Reaction:

• Market Movement: The market showed a slight increase, moving from 441 to 443.
• 2-Year Treasury Yield: Stood at 3.93, down seven on the week, and was on pace for the lowest yield closes.

7. Synthesis/Conclusion:

The economic data released shows a mixed picture. Personal income is growing strongly, while spending is more moderate. Inflation figures are generally in line with or slightly below expectations. The trade deficit has narrowed significantly. The market reaction was muted, with a slight increase. The presenter emphasizes the strength of personal income growth and the significant reduction in the trade deficit, while also noting the context of inflation and interest rates.